The Railroad Week in Review:
Motley Fool Bank analyst Dale Wettlaufer (www.fool.com) writes, "I love it when the people that run a company are willing to make economically beneficial decisions rather than praying to the altar of earnings estimates." That pretty well sums up my view of the NS earnings presentation earlier this week. Chairman David Goode and his three Vice Chairs -- Steve Tobias, Hank Wolf, Ike Prillaman -- rode into town Wednesday and delivered up as good a story as one could hope for given the dynamics of the northeast rail situation. Yes, you take the odd hit for CR start-up resources that can't be used for another five months. But at the same time you continue to mind the store.
Revenues for the quarter and year were about even with 1998, a $billion and change and $4.2 bn respectively. Street estimates were 45 cents and $1.73 for the quarter and year; NS delivered 42 cents and $1.93 respectively noting that Conrail-related items siphoned off six cents on the quarter and 41 cents for the year. Results for the full year reflect an after-tax gain of $105 mm (28 cents share) related to the first-quarter sale of North which was undone in 4Q98.
Digging behind the headlines the best part was seeing how carload yield improved. There are two components to this: how much you get for each carload of freight and how much freight you get in each car. Don Seale, VP Merchandise Marketing, showed that in most commodity groups revenue per carload increased over 1997 with the only apparent fall-off in automotive. That is, until you realize that more short-haul auto parts moves actually increase revenue per individual car thanks to rapid equipment turns. What this means is if one car getting one $2,000 move a month now does three $1000 moves the revenue per carload goes down yet per car yield goes up. And that's the ONLY case where "mix" in a valid excuse for less revenue per carload.
VP Public Affairs Bob Fort was quick to remind me that BNSF wasn't the only one knocking 'em dead at UPS (WIR 1/23). Chairman David Goode sent a letter round to all employees noting that "from Thanksgiving through Christmas Day, Norfolk Southern moved in excess of 7,000 UPS trailers and containers without a single service failure. That represents about 9.5 million individual packages that arrived on time during the holidays. This is an accomplishment that everyone at Norfolk Southern can point to with pride, and it is an example of the kind of commitment to customer service that is essential as we work to grow our business down the road. It's the commitment we'll need across the board throughout this year. Sincerely, David R. Goode."
This week also saw BNSF visiting the Big Apple with another hit show. Bet income for 4Q98 hit a record $296 mm, 63 cents a diluted share, up 8%, on revenues of $2.3 bn, up 6%. For the year, BNSF net was an adjusted $1.1 bn, $2.36 per share on a diluted basis, a 19 percent increase, on revenues of $8.9 bn, up 7%. During the fourth quarter, BNSF repurchased 1.4 million shares at an average price of $30.81 per share. This brings total 1998 repurchases under BNSF's share-repurchase program to 5.0 million shares at an average price of $30.75 per share.
For the year, the operating ratio dropped two points to 75.9 on ten percent more revenue ton miles. Freight revenue per thousand revenue ton-miles was off 4% while carloads moved grew 7%. [There's than mix again.] Average freight revenue per carload remained about the same ($1132) as did the number of employees (44,000). The big revenue gains (5% or more) by commodity group were in coal, intermodal and consumer goods. Automotive took a slight hit.
Quick Takes: The STB has set the oral arguments in the CN-IC merger for March 18 and the voting conference for the 25th. ** Signs of the times: Norfolk Southern hit a new 52-week low on Wednesday, while Wal-Mart hit a new high. Wisconsin Central affiliate TranzRail was the month's 5th largest decrease in short positions, off 95%. WC itself remains with about 3 days short interest, Not much. (Weekly rail performance measures may be tracked at www.aar.org.)
Continuing the thread on UP turn-around, customer perceptions are a great measure. Over the past week I made a number of customer calls and asked about UP service on each visit. Only one company said they'd seen any recent delay to speak of in Texas, though northern California was a problem. All said transit times were evening out. Also, a contact in the UP chemical marketing group writes, "Things continue to improve and we are growing our business once again. We have a very aggressive forecast for 1999 and so far we are tracking on schedule." Which fits with what was reported here last week.
Asset utilization is, as most readers of this paper know by now, a key driver of profitability: assets not under load eat cash rather than generating it. Which is why UP's rush to grow the loco fleet even as it tries to right-size the fleet by turning power faster could be a little self-defeating. I mean, do they really NEED all that horsepower?
Randy Resor can generally be depended upon to add some flair to this discussion. He writes, "UP now has 450 more locomotives and lots more crews, since during the service "meltdown" the bottom line was that they were providing less transportation service with more assets (since cycle times were so much longer). Now, between the traffic loss and the service improvement, I suspect they'll shortly be seeing surpluses of locomotives. That will cost money, unless they can find somebody to lease the power to." See what I mean?
One recurring theme at the recent round of AAR town meeting was the continual customer cry for the rails to "listen to us!" Get a load of this CSX release from Friday:
"Nearly 7,000 rail customers in the northeastern United States and Canada who are currently shipping on Conrail will find that CSX Transportation Inc. (CSXT) is 'Ready To Take You Places' when they receive the railroad's welcome kit' bearing this title. Subtitled 'How to get down to business with the new CSXT,' the kit contains six easy-to-reference guides for transacting business with the nation's largest eastern railroad once CSXT begins operating the lines it has been allocated in the Conrail transaction. This information is also available on CSXT's web site, www.csx.com.
"We conduct some business transactions differently and offer some other options than customers were accustomed to with Conrail," said Aden C. Adams, senior vice president-merchandise sales and marketing. We've designed this 'welcome kit' to be a streamlined, easy-to-use guide to make doing business with us easier."
Several years ago Wisconsin Central came out with a similar booklet which I wrote up in my Railway Age Column. Marketing Veep Bill Schauer called the other day to say he's still getting inquiries from that article. Moral of the story: Do something nice for your customers and the rewards will just keep going and going and...
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